Compliance Update

The Pension Protection Act of 2006 (PPA) allowed participants to roll over a distribution from a qualified plan, 403(b) plan, or governmental 457(b) plan directly to a Roth IRA beginning January 1, 2008. Participants could roll over directly to a Roth IRA if:

• The participant's modified adjusted gross income (AGI) was not more than $100,000, and
• The participant was not married filing a separate return.

AGI Limit No Longer Applies

On and after January 1, 2010, the modified AGI limit no longer applies to amounts directly rolled to a Roth IRA.

Tax Rules

Here are tax rules regarding the rollover:

• If a distribution is rolled over directly to a Roth IRA from a qualified plan, the rollover, reduced by any after-tax amounts, is immediately taxable.
• The 10% additional income tax on early distributions does not apply to the rollover.
• If the Roth IRA is new with no previous contributions, the five-year holding period begins on the date the amount is rolled over.
• For distributions from the plan during 2010 that are rolled over to a Roth IRA, the taxable amount can be spread over a 2-year period starting in 2011.